VAT Land Exemption Call for Evidence: HMRC Summary

08 December 2021      Andrea Marshall, Tax Specialist

The Government has published a summary of responses to its Call for Evidence: Simplifying the VAT Land Exemption.  This consultation clearly generated a lot of interest – HMRC received 73 responses.

BUFDG responded to this consultation in July 2021, - please see our response here.

Areas of difficulty that were highlighted in responses included:

  • anti-avoidance rules for the option to tax;
  • record of an option to tax and the need for some form of ‘real time’ accessible public record of the land and properties that had been previously opted;
  • Short-term arrangements, such as trading concessions, serviced offices and conference facilities, where it is unclear if the supply should be treated as a property letting or as the provision of facilities;
  • Mixed-use developments that include both commercial and residential areas, such as student accommodation with ground floor retail;
  • The rules surrounding overage, rights to light, call options and dilapidations where HMRC’s guidance and overall position is said to be unclear; and 
  • Inadequacy of HMRC’s guidance

Following the consultation, the Government:

  • does not intend to take any further action regarding any of the potential options previously discounted by the Office of Tax Simplification; and
  • agrees that linking the VAT treatment to an independent land register would be ineffective

Action that will/may be taken includes:

  • Better guidance on areas such as dilapidations, overages, call options and rights of light. (A working group has been set-up with members of the Land Property Liaison Group and work on some areas has started);
  • HMRC are going to further explore if it is possible to establish a workable definition of “short term” or “minor interests” with a view to making such supplies subject to VAT;
  • the Government would like to discuss further the implications of making most supplies of land subject to VAT with a limited number of exceptions – these is seen as a long term aim; and
  • HMRC may look to establish a more comprehensive and accessible register of existing options to tax and reviewing the anti-avoidance rules relating to the option to tax.

So overall, for the time being the status quo remains. 

If you have any questions, please contact Andrea.

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